Insurance Law Hawaii

Indiana Court Agrees with Hawaii In Finding No Assignment of Policy

     The Indiana Supreme Court recently aligned itself with the Hawaii Supreme Court in deciding an insurance policy could not be assigned without the insurer's consent. Travelers Cas. and Sur. Co. v. United States Filter Corp., 2008 Ind. LEXIS 953 (Ind. Sup. Ct. Oct. 15, 2008).  The holding in Travelers is consistent with the Hawaii Supreme Court's decision in Del Monte Fresh Produce (Hawaii), Inc. v. Fireman's Fund Ins. Co., et al., 2007 Haw. LEXIS 380 (Haw. Supr. Ct. Dec. 26, 2007). 

     U.S. Filter was sued for allegedly causing the underlying plaintiffs' exposure to silica from working near a blast machine previously owned by Wheelabrator Technologies, Inc. ("WTI"). U.S. Filter sought coverage under several comprehensive general liability policies issued to  WTI and other predecessors-in-interest.  More than eighty policies issued over the years were potentially implicated.  The policies contained a provision prohibiting assignment without the consent of the insurer.

     The intermediate court held that a chose in action arose under the occurrence-based policies at the moment of each loss, or each claimant's initial exposure to silica.  As freely transferable assets, the choses in action carrying coverage rights passed to U.S. Filter through a sale of assets. 

     The Indiana Supreme Court reversed.  The assignment of the policies through corporate transactions involving the sale of assets was invalid because there was no consent by the insurers as required by the policies. 

     U.S. Filter argued, however, that certain claims under the policies transferred as choses in action.  The Indiana Court acknowledged two lines of cases existed.  One group of cases, represented by the Ninth Circuit in Northern Ins. Co. of New York v. Allied Mut. Ins. Co., 955 F.2d 1353 (9t Cir. 1992), did not distinguish third-party losses as choses in action and allowed post-loss assignment of insurance claims.  Another group of cases, represented by Henkel Corp. v. Hartford Accident & Indemn. Co., 129 Ca. Rptr. 2d 828 (Cal. 2003), recognized potential risks to the insurers and upheld their contractual right to accept or reject the assignment.  Hawaii's Del Monte case aligned itself with Henkel.

     The Indiana Supreme Court joined the growing number of jurisdictions following Henkel.  A chose in action only transferred if it was assigned at a moment when the policy holder could have brought its own action against the insurer for coverage.  Under the policies at issue here, that moment did not arrive until a claim was made against the insured.  To the extent the injuries caused by the blast machine had occurred but had not yet been reported at the time of the transfer of assets, they did not constitute an assignable chose in action.  Accordingly, U.S. Filter did not have a right to seek coverage under their predecessors' CGL policies for these claims.

    

Mere Reference of Insurer in Policy Does Not Bind Insurer

     In Southern Surgery Center, LLC v. Fidelity and Guaranty Ins. Co., 2008 U.S. Dist. LEXIS 79971 (S. D. Miss., Oct. 8, 2008), United States Fidelity and Guaranty Company ("USF&G") insured a building owned by Southern Development Resources, LLC ("SDR").  A different insurer, Fidelity and Guaranty Insurance Company, insured two other companies related to SDR.  USF&G was identified in the policies issued to the related companies.  The issue in this case was whether USF&G must insure under these policies merely by being named in the policies?

     SDR made claims to USF&G for damage to the building and insured premises caused by Hurricane Katrina.  USF&G ultimately compensated for all of these claims, minus deductibles.  USF&G denied claims, however, based on losses to the related companies.  SDR sued, arguing that because USF&G was identified in the policies issued to the related companies, it was a party to those contracts.

     The District Court disagreed.  A review of the policies indicated USF&G issued one policy to SDR.  The declarations page on this policy stated, "Your Insurance Company is United States Fidelity & Guaranty."  On the other hand, the declaration pages for the two related companies stated, "Your Insurance Company is Fidelity and Guaranty Insurance Company."  Merely because USF&G was listed on a page of the form policy separate from the declaration pages did not mean USF&G was also insuring the related companies when USF&G was clearly not designated as their insurer.   Therefore, USF&G's motion for summary judgment was granted. 

Court Ponders Whether the Insurer Bad Faith Committed If No Excess Judgment against Insured

     Does the insurer act in bad faith when there is no excess judgment against the insured?  Further, is there bad faith when the insurer's actions never resulted in the insured's increased exposure to liability for more than the policy limits?  These two issues confronted the Eleventh Circuit in Perera v. United States Fidelity and Guaranty Co., No. 06-00688-CV-T-23 (11th Cir. Oct. 9, 2008). 

     Perera was crushed to death by a piece of equipment while on the job site.  His employer, Estes Express Lines Corp., held three insurance policies: (1) a workers' compensation liability policy issued by United States Fidelity & Guaranty with a $1 million limit after an self-insured retention of $350,000; (2) a CGL policy issued by Cigna with a $1 million limit and $500,000 deductible; and (3) an excess liability policy issued by Chubb with limits of $25 million. 

     Perera's wife sued Estes.  Perera, Estes, Chubb and Cigna eventually reached a settlement of $10 million.  Five million of this was to come from a bad faith lawsuit against USF&G which Estes assigned to Perera.  Perera sued USF&G for breach of contract and bad faith.  The district court granted summary judgment to USF&G on the bad faith claim, holding that without an excess judgment against the insured, there was no cause of action for bad faith.

     On appeal, the Eleventh Circuit agreed there was no excess judgment against the insured.  To constitute an excess judgment, a judgment of more than $25 million would be required.  The court noted at least two Florida cases indicated that an excess judgment is not an essential part of a bad faith claim.  See N. Am Van Lines v. Lexington Ins., 678 S.2d 1325, 1333 (Fla. Dist. Ct. App. 1996); Swamy v. Caduceus Self Ins. Fund, Inc., 648 So.2d 758, 759 (Fla. Dist. Ct. App. 1994).  Given the lack of clarity regarding the necessity of an excess judgment to a bad faith cause of action, the Eleventh Circuit sought guidance from the Florida Supreme Court.  The following question was certified:

     Can a cause of action for bad faith against an insurer be maintained when there is not an excess judgment against the insured?

     USF&G also argued that even if an excess judgment was not required, Perera's bad faith claim was barred because Estes was never exposed to liability in excess of limits of liability in its several policies.  Accordingly, a second question was certified to the Florida Supreme Court:

     Even if an excess judgment is not always required, can a cause of action for bad faith be maintained when the insurer's actions never resulted in increased exposure on the part of the insured to liability in excess of the policy limits of the insured's policies? 

     We will watch for the Florida Supreme Court's response to these issues.

      

Third Circuit Applies Doctrine of Uberrimae Fidei to Void Marine Policy

      In today's post, we return to the federal maritime doctrine of uberrimae fidei, previously reviewed here. Should the doctrine, which requires an insured to exercise the utmost good faith and disclose to the insurer all facts material to an insurance risk, apply when considering coverage under a marine policy?  The Third Circuit applied the doctrine in AGF Marine Aviation & Transport v. Cassin, Nos. 07-1640, 07-1641(3rd Cir. Sept. 29, 2008), and voided coverage under a marine policy.

     Cassin purchased a yacht for $400,000.  Nevertheless, in an application to insure the Yacht, he represented the purchase price was $600,000.  He then insured the yacht under successive policies for $600,000.  The policy provided any dispute would be "adjudicated according to well established, entrenched principles and precedents of substantive United States Federal Admiralty law and practice."   

     In 2000, the yacht sank of the coast of Grenada.  Cassin filed a claim.  After investigating, the insurer sued, alleging the policy was void because Cassin misstated the purchase price in his application.  Cassin argued there was no misrepresentation because the purchase price included a $200,000 equity stake in the Yacht. The district court applied the doctrine of uberrimae fidei and determined Cassin had materially misrepresented the purchase price of the yacht.  Therefore, the insurer was permitted to void the policy.

     Cassin appealed, arguing uberrimae fidei was not firmly entrenched in federal admiralty law.  The Third Circuit noted that most circuits agreed uberrimae fidei controlled in maritime insurance disputes.  The Third Circuit agreed the doctrine was well entrenched and applied in this dispute.  The Court determined the $200,000 equity was never transferred to Cassin.  Consequently, the purchase price was $400,000 and Cassin had misrepresented this amount in his application.

     Finally, the misrepresentation was material.  When a marine insurer asks the purchase price, it was a fact material to the risk, the misrepresentation of which violated uberrimae fidei.  Because Cassin misrepresented the purchase price, the policy was voidable ab initio.

Despite Assignment, Insurer's Payment to Victim Not Recoverable From Victim's Insurer

     If, after being fully compensated for injuries, the insured assigns her rights to underinsured benefits to another insurer, is the insurer entitled to the insured's right to benefits?  The Hawaii Intermediate Court of Appeals answered no in AIG Hawaii Ins. Co. v. State Farm Ins. Co., No. 27789 (Haw. Ct. App. Oct. 8, 2008).

     Manuel, State Farm's insured, was rear-ended by Negron, AIG's insured.  Negron was insured for bodily injury coverage and Manuel was insured for uninsured (UM) and underinsured (UIM) coverage.  AIG agreed to pay Manuel $20,000 in exchange for an assignment of her interest in the UM benefits under her State Farm policy.  Manuel then demand UIM benefits from State Farm.  State Farm agreed to pay an additional $13,500 in UIM benefits.  Manuel accepted the settlement of her UIM claim.

     AIG then sued State Farm for damages in the amount AIG paid to Manuel.  Meanwhile, the underlying case went to arbitration where it was determined Manuel injuries totaled $33,500.  After applying the deductible of $10,000, Manual's claim was $23,500. 

     The Circuit Court subsequently granted State Farm's motion for summary judgment, finding that based on the Arbitration Award, Manuel had been fully compensated.  Consequently, neither she nor AIG had any right to UM benefits under her State Farm policy.

     On appeal, the ICA first held the assignment to AIG was valid even though State Farm had never consented.  Manuel had merely assigned her contractual right to receive UM payments, if available, to AIG.  This created no additional risk to State Farm.

     Nevertheless, AIG stood in the shoes of Manuel and was not entitled to recover more than Manuel would be entitled to under her State Farm policy.  Therefore, AIG was not entitled to seek UM benefits from State Farm because Manuel had been fully compensated. 

     Finally, the ICA affirmed the award of attorney fees to State Farm under the assumpsit statute, Haw. Rev. Stat. 607-14.  AIG's claim for UM benefits was in the nature of assumpsit under section 607-14.  Further, AIG sought "costs and reasonable attorney fees" in its Complaint, preventing AIG from denying the underlying action was in the nature of assumpsit. 

Insurer Not Entitled to Summary Judgment When Repairs Uncompleted

     If an insurer pays for repairs to a building based on the insured's preliminary estimate of damage, does the insured have further obligations to pay for property damage?  This was one of the issues in Chateau Argonne Condominium Assoc. v. State Farm Ins. Co., 2008 U.S. Dist. LEXIS 70917 (E.D. La. Sept. 19, 2008).

     Plaintiff owned four condominiums in New Orleans.  It had a condominium association policy and a flood policy from State Farm.  All four condominiums suffered damage during Hurricane Katrina.  Plaintiff got an estimate of $283,900 to repair the four units. 

     Plaintiff contracted for repairs in the amount of $283,900.  But due to unexpected costs and oral modifications of the contract, the repairs eventually amounted to $731,355.  State Farm paid $336,568 under both policies, but refused to pay more.  State Farm relied on its policy which limited its liability to "the amount the insured actually spends that is necessary to repair or replace the damaged property."

     Plaintiff sued and State Farm moved for summary judgment.  The motion was denied because it was possible that State Farm may have paid only a portion of the necessary repairs.  Accordingly, there was a genuine issue of material fact regarding the whether State Farm would be liable for additional expenses. 

     A second issue arose from State Farm's motion in limine to exclude evidence regarding other Katrina insurance claims it paid.  Plaintiff wanted to demonstrate that its payment from State Farm was unfairly low based on payments for similar properties in New Orleans, including property three blocks from Plaintiff's condominiums.  State Farm's motion in limine was granted.  The other properties differed in significant respects.  The properties were located several blocks apart, were built and repaired at different times, and were a different size.   

Sinkhole Collapse Not Excluded as Earth Movement

     In Federated Rural Elec. Ins. Corp. v. TIG Ins. Co., 2008 U.S. App. LEXIS 20268 (9th Cir. Sept. 19, 2008), the issue was whether an excess, following form policy excluded coverage for "sinkhole collapse" under its earth movement exclusion. 

     TIG's excess policy excluded "earth movement," but did not define "earth movement."  TIG's policy followed the underlying policy issued by Federated Rural Electric Insurance Exchange. Federated's policy was ambiguous as to whether it defined earth movement to exclude sinkhole collapse. One portion of the policy stated, "Any earth movement (other than sinkhole collapse) . . . ."  This provision could be viewed as defining the term "earth movement" in the immediately preceding heading, which read, "Losses resulting from earth movement," as excluding sinkhole collapse.  On the other hand, this language could be interpreted to define "earth movement" as including sinkhole collapse.  The words "other than" preceding "sinkhole collapse" suggested that sinkhole collapse was a form of earth movement, but that sinkhole collapse was excepted from the earth movement exclusion.  In light of these two reasonable interpretations, the Federated policy was ambiguous as to the definition of earth movement. 

     Because TIG's policy "follows the terms conditions and definitions" of the Federated policy, the Federated policy's definition of earth movement could be imported into the TIG excess policy.  Therefore, the TIG policy covered loss due to sinkhole collapse.

Insurer Entitled to Attorney Fees Under Assumpsit Statute

     In a recommended decision, a United States magistrate determined the insurer was entitled to attorney fees under Hawaii's assumpsit statute, Haw. Rev. Stat. 607-14.  See Deguchi v. Allstate Ins. Co., 2008 U.S. Dist. LEXIS 73072 (D. Haw. Sept. 23, 2008). 

     A prior post discussed the facts of Deguchi.   Briefly, Allstate insured a vessel which sank under suspicious circumstances.  Allstate denied coverage because the insureds failed to: complete their oral examination under oath; produce documents relating to the purchase and financing of the vessel; produce documents relating to their personal finances; and produce phone records from the night the vessel sank. 

     The insureds filed suit, alleging four counts, including breach of contract and bad faith.  In April 2008, the District Court granted Allstate's motion for summary judgment on all of the insureds' claims. 

     Allstate then moved for attorney fees and costs pursuant to Haw. Rev. Stat. 607-14.  The magistrate agreed Allstate was entitled to fees for the breach of contract claim, but not the bad faith or other claims.  Under Hawaii law, an award of attorney fees must be apportioned between assumpsit and non-assumpsit claims.  Where, however, it is impossible to separate assumpsit from non-assumpsit claims, allocation is not required.

     Here, with the exception of time devoted solely to the bad faith claim, Allstate's work appeared to have been devoted to the action as a whole.  An appropriate award, therefore, was 75% of the time attributable to the action as a whole. 

     Turning to the amount of fees to be awarded, the rates of $140 and $115 per hour were reasonable.  Duplicate billing for time spent at the same meeting was deleted.  Further, section 607-14 limited the award of attorney fees to 25% of the judgment.  Because Allstate, the Defendant, prevailed, the fee award was "assessed . . . upon the amount sued for . . . ."  Haw. Rev. Stat. 607-14.  The insureds' Complaint did not specify the amount of damages they sought.  But in exempting the case from the Court Annexed Arbitration Program, the Complaint stated that the jury award would likely exceed $150,000.  Therefore, the magistrate's recommended award of attorney fees was within 25% of this amount.